There will come a point when your business can make that much-anticipated leap from start-up to scale-up. But how do you know when the time is right? If you go too early, your efforts could flounder. If you leave it too late, you could risk missing the boat altogether. And once it’s time to start scaling, how do you navigate with skill, what can be a perilous, high-stakes journey? We consider all of this and more as we step you through our five tips for creating a successful scale-up.
Understanding the scale-up
But before we get into how to scale up, what does scaling a business mean? How is it different from regular year-on-year growth? Scaling up refers to exponential growth: the kind of growth that looks like a hockey stick when it’s plotted on a graph. In a nutshell, it’s growth that involves your business adding revenue and customers without adding to its cost base at the same rate.
1. Watch for signs you’re ready to scale up
Knowing when it’s time to scale up and begin your high-octane growth odyssey hinges on you knowing the difference between a start-up and a scale-up. According to world-renowned growth and scale-up guru, Verne Harmish, a business is a start-up until it has proven its business model. Conversely, a business is a scale-up when it already has a proven business model and is scaling its revenue. Here are some of the best indicators you’re ready for exponential growth:
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Product/market fit
Product/market fit means you’ve hit the sweet spot and your product or service substantially satisfies a challenge for a given segment of consumers.[1] You’ve worked out who your customers are and ironed out any wrinkles that your product or service had by engaging with your early-adopter fan-base and other stakeholders. By this stage, you know where your customers are, and which marketing activities and channels deliver the best bang for your buck.
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Funding and revenue
According to the Organisation for Economic Co-operation and Development (OECD), scale-ups are high-growth enterprises that have a minimum of 10 staff. These entities also have average annual growth above 20% (either in employment or revenue) three years running.[2] Other indicators that you’re ready to move from start-up to scale-up include an annual turnover between $1 million and $3 million, and having completed seed and Series A funding rounds.
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Process and structure
In a start-up, agility and speed are everything. Founders and their small teams wear many hats to resolve whatever tasks and challenges emerge. If this cut and thrust approach is starting to grate with your customers and investors, it’s a sign your business is ready for some additional structure and processes. This will not only make your enterprise more efficient and professional but more scalable too.
Reading the tea leaves correctly when it comes to your start-up’s readiness to scale is mission critical. According to the StartupGenom’s survey of 3200+ start-ups, 74% of failures can be explained by premature scaling.[3] So don’t let hubris tempt you to skip over this important first step.
2. Commit to the growth journey
If you’re going to scale your business successfully, you have to commit to doing so wholeheartedly. Before you sign up for scaling, revisit the vision you had for your business. Are you trying to make a splash in your industry sector or even change people’s lives in some way? With your vision reinforced, it’s time to develop realistic growth targets together with the plans and activities you need to achieve them.
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Keep your eye on the prize
If you identified opportunities to diversify your product/service offering or the potential to branch out into new markets during the start-up phase, now’s the time to take another look at those insights. Decide whether, how and when you might diversify during the scale-up journey. Look at the return on investment of each diversification opportunity and roll out new initiatives, to best support your scale-up’s revenue. But be wary of becoming distracted by non-core growth opportunities that may sit better in a post-scale-up diversification phase for your business.
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Communicate
Don’t keep your kick-ass grand vision, growth strategy and detailed planning to yourself. Be sure to bring each and every one of your team along with you for the journey. Doing so will be crucial to ensure your scale-up journey is effective and as drama-free as possible. It will also help you create and consolidate a robustly positive corporate culture to attract and retain the team you need to succeed.
3. Find your scale-up funding strategy
Once you start to scale up, you’ve left bootstrapping, seed funding and Angel Investors in the rearview mirror. Now, you need capital and lots of it because the thing you must avoid as you scale up is running out of cash. Scaling up is when venture capital (VC) has its day in the sun. Funding businesses with the potential for exponential growth and returns is what VCs do. Your business may already have raised seed or Series A funding from an investor. So if that’s the case, now’s the time to reconnect and line up the larger funding rounds of B and beyond.
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Be prepared and be patient
When you’re raising capital to scale, remember that a larger investment has higher stakes. VCs investing in later-stage funding are typically more risk averse than early-stage or pre-revenue investors. So factor this in by being well-prepared and ready to impress investors at an early stage of your scaling plans and allow yourself more time to woo them.
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Remember revenue
Depending on your business model and product or service, it may be possible to sidestep the VC option entirely. Subscription-based and peer-to-peer business models can thrive with a funding strategy that predominantly relies on revenue. But it’s not a panacea for all scale-ups.
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Grant funding
While many grants and incentive programs focus on start-ups in their early stages, there are also government and non-government grants and incentives for scale-ups. Depending on your industry sector and business circumstances, you may qualify for a later-stage business growth support such as Westpac’s social scale-up grant program, a Federal Government Accelerating Commercialisation Grant or an Export Market Development Grant. For more information about the government grants and programs, your scale-up may be eligible for, use the handy grant finder tool available on the business.gov website.
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The R&D Tax Incentive
If your business has eligible R&D (ongoing or recently completed), you can explore claiming the R&D Tax Incentive (R&DTI). You could qualify for a 43.5-cent refund on every R&D dollar you invest. Or if your aggregated annual turnover is over the tax refund threshold of $20 million, you could receive a tax offset instead. If you’re eligible for the R&DTI refund, you can access it early with R&D financing, such as a Radium Advance. You can use the capital to fund additional research or deploy it into other areas of your business as it scales. It’s your money, so the choice is yours. If you reinvest in R&D, your Radium Advances enable you to grow your final R&D tax refund and your R&D budget which is an additional benefit of Radium Capital’s financing.
4. Focus on people power
According to Verne Harmish,[4] scale-ups face two major challenges: one is people and the other processes, which we cover in our fifth and final tip. As we touched on earlier, in a start-up, the founding team typically wears many hats. While your employees may have distinct roles and allocated duties, boundaries can be blurry out of necessity to get the job done. But this practice needs to be consigned to your company’s history books if you want to scale up effectively.
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Internal hierarchies
Investing in a highly-qualified leadership team is make or break for scaling your venture. It’s one of the key factors that will take you from start-up to scale-up because it prevents growth stalling due to bottlenecks in decision-making. Being open to coaching, feedback and mentoring as a founder is vital: as is letting go of the reins and empowering your new hires to use the specific skill set and experience that they have, and you don’t. It’s these new leaders that you add to your team and fully dedicate to their specific roles, who will develop the business in ways you could not on your own.
During the start-up phase, you will have focused on product development and marketing. Now you need to build out your marketing activities and move product/service diversification up the company’s priority list. People and culture are increasingly important during the scale-up phase. So it’s time for you to develop the human resources, governance and administration functions of your business. This will facilitate the hiring of new team members as you grow, and ensure they are onboarded effectively and hit the ground running.
Focusing on governance and administration will ensure you have leaders on your team who are fully accountable for managing a larger staff and ensuring a larger customer base and larger order sizes are managed efficiently and to the highest standards.
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External networks
From investors and sales partners to service providers, suppliers and customers, focusing on proactively nurturing your external network while scaling is crucial. It will ensure your business has the external support it needs as it moves at warp speed on its scaling journey. So don’t overlook this important part of the people puzzle as you scale.
5. Make processes a priority
As your business begins to grow, it’s crucial to bring a laser-like focus to which processes you can automate and streamline. Anything that hasn’t already been finessed with a down-pat process needs to become so. This will free up time and resources, and enable you to meet the expected surge in demand as you scale.
Don’t limit automation and streamlining to the end-to-end product/service supply chain. You also need to be using automation to ramp up your marketing efforts. After all, you need to make sure you have enough new clients to scale. Seamless recruitment and onboarding processes should also be a top priority so new staff can quickly begin managing your burgeoning customer base. Areas such as accounts and payroll are low-hanging fruit for efficient processes and automation. So don’t forget to include them in your process and automation blitz.
How Radium Capital can help
If your business is ready to buckle up for warp speed and experience exponential growth, then Radium Advances can be a crucial element of your funding strategy. Providing your business is eligible for the R&DTI refund, you can apply for a Radium Advance. At Radium Capital, we provide R&D financing for all types, sizes and stages of businesses with R&D and that includes scale-ups with eligible innovation expenditure.
Our R&D loans let you access your expected R&D tax refund early. And the whole process — from applying to receiving your funding — only takes a few business days. So if you’d like to access a reliable source of affordable, non-dilutionary capital, get in touch with our friendly team at Radium Capital today.
[1] New Breed Revenue.2020. What is Product-Market Fit? [ONLINE] Available at: https://www.newbreedrevenue.com/blog/product-market-fit.
[2] OECD Library. 2019. The Missing Entrepreneurs 2019: Policies for Inclusive Entrepreneurship. [ONLINE] Available at: https://www.oecd-ilibrary.org//sites/64674a8b-en/index.html?itemId=/content/component/64674a8b-en#boxsection-d1e18186.
[3] Inc.com. 2014. 7 Ways to Prepare Your Startup to Scale Up | Inc.com. [ONLINE] Available at: https://www.inc.com/neil-patel/7-ways-to-prepare-your-startup-to-scale-up.html.
[4] Will Your Startup Ever Scale Up? Here’s What You Need To Know. 2022. Will Your Startup Ever Scale Up? Here’s What You Need To Know. [ONLINE] Available at: https://blog.growthinstitute.com/scale-up-blueprint/startup-to-scaleup